$4.7bn offshore bid for Macarthur Coal

US miner Peabody Energy and ­global steel maker ArcelorMittal have combined forces for a joint $4.7 billion cash takeover bid for
Macarthur Coal
just a day after the federal government provided more investment certainty by releasing details of its carbon-pricing plan.

The Macarthur board was last night considering the third takeover proposal in just over three years for one of the largest independent coalminers. Macarthur is the world’s biggest producer of pulverised coal injection (PCI), a specialty coking coal product used in steel making.

The $15.50-a-share offer compares with a $16-a-share proposal put ­forward by Peabody last year that was contingent on a scheme of arrangement requiring the approval of 75 per cent of shareholders.

That offer was later lowered to $15 a share after the government introduced the resource super profits tax, and was eventually rejected by Macarthur’s largest shareholder, China’s Citic. In addition to its 24.5 per cent shareholding in Macarthur, Citic has a representative on the miner’s board and stakes in some of its projects.

In Tuesday morning trade, Macarthur’s shares rose 37 per cent, or $4.11, to $15.19 at 11.20am AEST. The shares opened at $15.30.

Macarthur is an attractive target because it is one of Australia’s last remaining independent coalminers after Yanzhou Coal bought Felix Resources for $3.5 billion in 2009 and Thailand’s Banpu bought
Centennial Coal
for $2.4 billion last year. A recent internal auction for
Whitehaven Coal
failed to result in a deal, but analysts believe it is still a potential target.

Peabody chief executive Greg Boyce said his company could add “significant value" by combining Macarthur’s assets with its own operations in Australia. In previous attempts to take over Macarthur, the dominance of the major shareholders has proven a hurdle to completing a transaction.

The latest offer by Peabody and ArcelorMittal requires the acceptance of only 50.01 per cent of the share register, eliminating the risk the bid could be blocked by Citic as happened in last year’s thwarted scheme-of-arrangement bid. Peabody owns a 60 per cent share of the bidding vehicle, while Arcelor owns 40 per cent.

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“Certainly the structure has improved and does increase the likelihood of [Peabody and Arcelor­Mittal] getting 50.1 per cent and then control," Deutsche Bank analyst Paul Young said.

Rio Tinto
recently used a similar tactic in its $4 billion bid for Mozambique coal developer Riversdale Mining, which had two steel makers with major stakes on the register, emerging with 100 per cent of the target.

“Given the shareholding structure of Macarthur, which is a bit unusual, I would have thought a competing bid seems unlikely," BT Financial Group portfolio manager Tim Barker said.

He said it was possible that if the bidders got past 50.1 per cent, Citic could eventually accept the offer as Tata Steel and CSN did after Rio gained majority control of ­Riversdale.

A Citic spokesman in Hong Kong told Bloomberg last night his company had not decided whether it would accept the proposal.

ArcelorMittal chief financial officer Aditya Mittal said last night the steel maker looked forward to discussing its proposal with the Macarthur board. Macarthur chief executive
Nicole Hollows
and chairman
Keith de Lacy
were unavailable for comment.

Macarthur shares closed 32¢ lower at $11.08 on Monday before it revealed the approach from Peabody and ArcelorMittal, due in part to ­concerns over the impact the carbon price would have on the miner’s ­operations.

The $15.50-a-share offer, which will deduct any final dividend paid by Macarthur, therefore represents a 40 per cent premium to the last closing price.

In US dollar terms, it is a higher offer than the initial $16-a-share Peabody had offered last year, due to the strength of the Australian dollar.

Mr Young said the offer was above his $11.30-a-share valuation of Macarthur, but added there were likely synergies available from Peabody combining Macarthur with its own Queensland operations and optimising which coal to send through its allocated port capacity.

Mr Barker said it was likely the bidders had waited for the government’s announcement on Sunday to provide more certainty about the structure of the new carbon pricing regime before making an approach to Macarthur.

Macarthur produced about 3.8 million tonnes of coal in the financial year ended June 30, but plans to more than double its output in the coming years through new projects such as the Middlemount joint venture with Gloucester Coal that is already under construction.

Macarthur is expected to report a profit of $240 million to $260 million this year including proceeds of $75 million from the sale of part of its Codrilla project, despite having had its production interrupted by flooding in Queensland.

Citigroup forecasts it will produce 5.2 million tonnes of coal this year, for a profit of $251 million.

The price of its main product, PCI, hit record levels in the June quarter but has fallen by 16 per cent to $US230 a tonne in the September quarter amid lower demand from Japan after its ­natural disasters in March.

The proposal by Peabody and ArcelorMittal is only the latest in a string of offers for the coking coalminer. In 2008, Anglo-Swiss miner Xstrata approached Macarthur about a takeover offer but no deal eventuated after ArcelorMittal and Posco bought stakes from Mr Talbot and Mr Tinkler.

Last year, after Peabody made a takeover proposal in an effort to block Macarthur from merging with Gloucester, Queensland miner New Hope Corp emerged with a competing offer that was also rejected.

In addition, Xstrata hired Macquarie Capital as an adviser to consider an offer that would have given the Anglo-Swiss miner control of the Queensland miner by vending in some of its own coal assets, but the deal was never put to the Macarthur board.